California Federal Court Confirms Arbitration Award Benefitting Third-Party

The U.S. District Court for the Northern District of California denied a petitioner's motion to vacate an arbitration award on the grounds of the award being "irrational and illogical," erroneous, and that the arbitrator manifestly disregarded the law and engaged in prejudicial misconduct.

The Court found the arbitration award was not irrational or erroneous because the parties' agreement provided authority for the arbitrator's decision to order petitioner to pay money to a third-party (which was an affiliate of the respondent). With respect to the argument that the arbitration award was erroneous, the Court noted that "neither erroneous legal conclusions nor unsubstantiated factual findings justify federal court review of an arbitral award under the [Federal Arbitration Act] statute, which is unambiguous in this regard."

The Court also found the arbitrator did not manifestly disregard the law, as petitioner did "not cite any clear and established law that prohibits arbitrators from issuing awards that benefit third parties. Moreover, even if there were an applicable law prohibiting arbitration awards to third parties, [petitioner] does not show that the arbitrator 'recognized' and 'ignored' that law."

Lastly, the Court found...